VAT ON E-COMMERCE : CURRENT POSITION AND WAY FORWARD PRESENTATION FOR THE SOUTH AFRICAN ONLINE USER GROUP Ruaan van Eeden Director - Tax B.Com (Acc), Higher Diploma in Tax Law, M.Com (SA & International Tax) VAT ON E-COMMERCE VAT on e-commerce 28 August 2014 2 VAT ON E-COMMERCE Topics for discussion Why the change? VAT on e-services Final Regulations Registration, compliance and enforcement VAT on e-commerce 29 August 2014 3 VAT ON E-COMMERCE South Africa imposes VAT on a consumption basis The consumption basis leaves certain gaps in the definition of “enterprise” South Africa does not have specific place of supply rules VAT on imported services / reverse charge mechanism VAT on e-commerce 28 August 2014 4 VAT ON E-COMMERCE E-commerce difficult to tax as it could be multi-jurisdictional and ever changing international trend is to impose VAT where the recipient of the services resides foreign suppliers of electronic services required to register as vendors – R 50,000 per annum turnover threshold (payment basis) effective date 1 June 2014 regulation issued by Minister of Finance stating which type of services must register for e-services VAT VAT on e-commerce 28 August 2014 5 VAT ON E-COMMERCE PRE 1 JUNE 2014 POSITION FOR EDUCATIONAL INSTITUTIONS exempt supplies by an educational institution VAT on imported services / reverse charge mechanism applicable to ‘educational services’ the “enterprise” definition lack of ‘place of supply’ rules and the need to even out the playing field VAT on e-commerce 28 August 2014 6 VAT ON E-COMMERCE POST 1 JUNE 2014 POSITION FOR EDUCATIONAL INSTITUTIONS 14% increase in cost of electronically supplied services unable to claim input tax by virtue of making VAT exempt supplies under section 12 of the VAT Act can the educational institution still be held liable for VAT if foreign supplier refuses to register? VAT on imported services still remains as backstop what about ‘educational services’ exemption in section 14? what about ‘educational authority’ exemption in Regulations? VAT on e-commerce 28 August 2014 7 VAT ON E-COMMERCE VAT registration and foreign suppliers Section 7(1)(a) of the VAT Act- levying of VAT in respect of the supply by any vendor of goods and services in the course or furtherance of any enterprise carried on by that vendor. a person or business that is not physically active in South Africa would not ordinarily be seen as carrying on an enterprise VAT on e-commerce 28 August 2014 8 VAT ON E-COMMERCE The Taxation Laws Amendment Act, No 31 of 2013 introduced amendments to the VAT Act that introduced a specific ‘place of supply’ rule in respect of electronic services. Specifically, the definition of an 'enterprise' has been amended to include, the supply of electronic services, by a person or business outside of South Africa to a recipient in South Africa (or where payment for the services comes from a South African bank). VAT on e-commerce 28 August 2014 9 VAT ON E-COMMERCE The foreign supplier of electronic services will become liable to register as a vendor at the end of any month where the value of taxable supplies by that person has exceeded R 50 000. Accounting for VAT will be on a payments basis and compulsory through e-filing. Foreign suppliers only required to issue abriged tax invoices. No refunds to be paid – any overpayments will be set-off against future liabilities VAT on e-commerce 28 August 2014 10 VAT ON E-COMMERCE Final Regulations On 28 March 2014 National Treasury published the Government Gazette No 37489, Notice R221 (the "Regulations") which narrowed the definition of electronic services. Under the Regulations, electronic services are divided into specific categories educational services; games and games of chance; internet-based auction service; miscellaneous services; and subscription services. VAT on e-commerce 28 August 2014 11 VAT ON E-COMMERCE Final Regulations Educational services include – Distance teaching programmes; Educational webcasts; Internet based courses; Internet based education programmes; or Webinars But only if the supplier of the service is NOT regulated by an ‘educational authority’ in the export country VAT on e-commerce 28 August 2014 12 VAT ON E-COMMERCE Final Regulations Subscription services include – Blogs, journals, magazines, newspapers; Games; Internet based auction services; Periodicals, publications; Social networking service; Webcast; Webinar; Website; Web application; Web series. VAT on e-commerce 28 August 2014 13 VAT ON E-COMMERCE PRACTICAL EXAMPLE SERVER WEBSITE PUBLISHING COMPANY OFFSHORE SA SA UNIVERSITY Contractual Arrangement Invoicing and payment CLOUD SERVER VAT on e-commerce 28 August 2014 14 QUESTIONS?